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Showing posts from June, 2018

Haven’t filed your 2017 income tax return yet? Beware of these pitfalls

The federal income tax filing deadline is slightly later than usual this year — April 17 — but it’s now nearly upon us. So, if you haven’t filed your individual return yet, you may be thinking about an extension. Or you may just be concerned about meeting the deadline in the eyes of the IRS. Whatever you do, don’t get tripped up by one of these potential pitfalls.

Filing for an extension

Filing for an extension allows you to delay filing your return until the applicable extension deadline, which for 2017 individual tax returns is October 15, 2018.

While filing for an extension can provide relief from April 17 deadline stress and avoid failure-to-file penalties, there are some possible pitfalls:


If you expect to owe tax, to avoid potential interest and penalties you still must (with a few exceptions) pay any tax due by April 17.


If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own. (If you’re owed a …

Minding the new rules of summer internships

The summer months are almost here and, with them, the prospect of many employers offering unpaid internships to high school and college students. If your organization is considering such a move, tread carefully. Under the Fair Labor Standards Act (FLSA), if an intern is determined to actually be an employee, the employer must pay him or her at least minimum wage, plus overtime to the extent applicable. Fortunately, new rules introduced earlier this year make it a little easier to establish unpaid intern status.

How it used to be

Previously, an arrangement had to pass a six-factor U.S. Department of Labor (DOL) test to qualify as an unpaid internship:

1. The work must have been performed as an extension of a trade studied by the intern or be akin to his or her school training.
2. The work must have been for the intern’s benefit.
3. The intern couldn’t have replaced regular employees but rather must have worked under their close observation.
4. The employer must have derived no immediate adv…

Putting your child on your business’s payroll for the summer may make more tax sense than ever

If you own a business and have a child in high school or college, hiring him or her for the summer can provide a multitude of benefits, including tax savings. And hiring can make more sense than ever due to changes under the Tax Cuts and Jobs Act (TCJA).

How it works

By shifting some of your business earnings to a child as wages for services performed, you can turn some of your high-taxed income into tax-free or low-taxed income. For your business to deduct the wages as a business expense, the work done must be legitimate and the child’s wages must be reasonable.

Here’s an example: A sole proprietor is in the 37% tax bracket. He hires his 20-year-old daughter, who’s majoring in marketing, to work as a marketing coordinator full-time during the summer. She earns $12,000 and doesn’t have any other earnings.

The father saves $4,440 (37% of $12,000) in income taxes at no tax cost to his daughter, who can use her $12,000 standard deduction (for 2018) to completely shelter her earnings. This …

Sending your kids to day camp may provide a tax break

When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit!

Dollar-for-dollar savings

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2018, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 24% tax bracket, $1 of deduction saves you only $0.24 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

Qualifying for the credit

A qualifying ch…